topic2a worldtrade institutions

7/28/2019 Topic2a WorldTrade Institutions

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INSTITUTIONSOFTHE

INTERNATIONALECONOMY

IMFX 2012


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REFERENCES

1. Amit Bhaduri, Ch 5

2. Age of Uncertainty: The Mandarin Revolution -Keynes

3. The Ascent of Money: Ch 5 Chimerica

4. Amit Bhaduri & Deepak Nayyar An Intelligentpersons guide to liberalisation


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INTERNATIONAL INSTITUTIONS

The Three Main Institutions (IMF, World Bank,WTO) Why They Were Created, and When How They Have Changed Their Reputations Today

Other Institutions United Nations OECD = Organization for Economic Cooperation and

Development Preferential Trading Arrangements

Whats Happening Now? The World Financial Crisis The Doha Round PTAs Trade Disputes

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THE 4 - MAIN INSTITUTIONS

Functions

IMF (International Monetary Fund): FinancialAssistance

World Bank: Development Assistance

WTO (World Trade Organization): Trade PolicyRegulation and Negotiation

WIPO

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THE 4 MAIN INSTITUTIONS

History

Before World War II

Great Depression

High Tariffs on trade

Competitive Devaluationsof currencies

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Beggar ThyNeighbor Policies


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THE 4 MAIN INSTITUTIONS

History

End of World War II

Bretton Woods Meeting (Bretton Woods, NH)

IMF

World Bank ITO (International Trade Organization)

Never ratified

Instead: GATT (General Agreement on Tariffs and Trade)

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WIPO


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MAIN INSTITUTIONS

History Changes since 1940s

IMF

Originally enforced pegged exchange rates

Purpose: To prevent beggar-thy-neighbor exchange-rate policies

Major currencies switched to floating in 1970s IMF still provides financial assistance

Until recently, mostly to developing countries

Subject to conditionality = required policy changes

In 21st century, many countries were paying off their loans, until recently

IMF was wondering about its income, but now is lending to

countries in crisis, such as Greece and Ireland.

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MAIN INSTITUTIONS

History

Changes since 1940s

World Bank

=IBRD (International Bank for Reconstruction and

Development) Originally intended for reconstruction from war

Now mainly assists development

Much of it by funding and assisting with projects

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MAIN INSTITUTIONS

History Changes since 1940s

GATT

Rules of international trade policy

Rounds

of negotiation Uruguay Round

Created WTO in 1995

Currently is/was doing Doha Round

Begun 2001 in Doha, Qatar

Stumbled in 2003 (Cancn) and 2005 (HK)

Suspended July 2006, but restarted 2007Suspended again in 2008

Future uncertain: More on this later

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MAIN INSTITUTIONS

Reputation today, among some:

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MAIN INSTITUTIONS

Reputation Today: Criticized by Opponents of globalization

Opponents of corporations

Some in Developing Countries for dominance

by US by rich countries

by corporations

Some in US for undermining US power

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MAIN INSTITUTIONS

Reputation Today: Criticized by Scholars for institutional flaws

IMF: Has imposed misguided policies

World Bank: Wastes resources on corrupt elites

WTO: Dominated by rich countries, corporations

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OTHER INSTITUTIONS

G-7, G-8, G-20: These are Groups of countries

G-7 = US, Canada, Japan, Britain, France, Germany, Italy

Finance ministers meet

G-8 = G-7 + Russia (since 1998)

Heads of state met annually, until recently

G-20 = G-8 + Australia & EU, + 10 major EMEs (EmergingMarket Economies)

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= 19 Countries+ EU


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OTHER INSTITUTIONS

G-20 Used to meet regularly, but only the finance ministers

First G-20 summit (i.e., heads of state) met November2008, London

Met again September 2009, Pittsburgh Now looks like G-20 summits will be the main regular

meeting, probably once a year Last was in Cannes, France, November 2011

Next, in June 2012, will be in Los Cabos, Mexico

Finance Ministers still meet, as needed 5 times in 2011!

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G-20

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OTHER INSTITUTIONS

UN = United Nations UNCTAD (United Nations Conference on Trade and

Development)

ILO (International Labor Organization)

WIPO (World Intellectual Property Organization)16

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OTHER INSTITUTIONS

EU = European Union

NAFTA = North American Free Trade Area

ASEAN = Asso of South East Asian Nations

SAARC = South Asia MERCOSUR = South America

APEC, BIMTECH, Mekong Delta

OECD = Organization for Economic Cooperation

and Development Club of high-income countries

Does research, collects data, drafts policies17

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WHATS HAPPENING NOW?

RECOVERYFROM THE WORLD FINANCIALCRISIS

Crisis started in US with burst of housing bubble Loans had been made, counting on rising house prices

With burst, loans went bad

Banks and other institutions were interlinked via Bad loans

Complex financial instruments whose value fell and/or was uncertain

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Crisis spread To most other developed countries through financial

institutions

To some developing countries too

Income and expenditure fell, causing world-widerecession Falling house prices alone reduced wealth

Failures in financial markets made it worse

Banks stopped lending

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Whats Happening Now?

Recovery from The World Financial Crisis


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Recession caused immediate drop in international trade This made matters worse

It spread the recession to countries that had not been exposed

to financial markets

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Whats Happening Now? Recovery from The World Financial Crisis


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Source: IMF & IndexQ.org

0.000

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2008

2010

World GDP, annual, 2005=100


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World Exports, monthly, $billionJuly 2008

Mar 2009

Source: IMF


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Source: IMF

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World Goods Exports, monthly, $billion

July 2008

Feb 2009

Down43%


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GLOBAL RECESSION STATUSJANUARY 10, 2010

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In RecessionModeratingRecoveringExpanding

Source: Dismal Scientist


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GLOBAL RECESSION STATUSDECEMBER 31, 2010

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GLOBAL RECESSION STATUSJANUARY 8, 2012

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What was done about it?

Central banks, cut interest rates and extended credit.

Banks were rescued.

Countries usedStimulus Packages

(tax cuts and spending

increases) to stimulate economies.

G-20 began meeting, first in London

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What was done about it?

IMF back in business making loans.

Packages already in hand for

Iceland

Hungary

Ukraine.

Many more

G-20 promised more funds to IMF

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What will prevent future problems?

Financial regulation

restraints on bank lending

reform of credit rating agencies

Managed currency policies? (US concern with Chinascurrency.)

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In 2010, starting with Greece, countries in theEurozone found themselves with unmanageabledebts

Markets feared default; interest rates rose

EU and IMF stepped in with loans

Similar things happened later to Ireland, andmarkets now fear the same for Portugal and Spain

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Whats Happening Now? Debt Problems of EU


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Leaders of the EU have met repeatedly

They disagree over

Who will pay for any bailout of Greece and others

Whether the bond holders (those who own sovereign debt of

Greece ad others) should bear some cost Result has been repeated fixes that dont solve the

problem

Some say this all threatens the euro.

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Whats Happening Now? Debt Problems of EU


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WHATS HAPPENING NOW? - IFIS

IFIs = International Financial Institutions IMF and World Bank

See Lachman article: Reputations suffered

IMF from financial crises and mis-management But recent actions have looked better

WB from leadership of Paul Wolfowitz

Roles have been reduced by private lending, but their staffs havegrown, by 50% over last 10 years

What should they be doing?

IMF: surveillance over exchange systems and imbalances WB: alleviate poverty, especially in Africa

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WHATS HAPPENING NOW? - DOHA

Doha Round (of multilateral tradenegotiations under the WTO) Began at Doha, Qatar, 2001

NegotiationsTake place at WTO Headquarters in Geneva,

Switzerland

But periodically occur at Ministerial Meetings (meetingsof trade ministers) in other cities

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Doha Round starts and stops Cancn Ministerial, 2003: Failed to agree

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Cancn:

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Doha Round starts and stops Cancn Ministerial, 2003: Failed to agree

Hong Kong Ministerial, 2005: Only minimalagreement

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Hong Kong:

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Doha Round starts and stops Cancn Ministerial, 2003: Failed to agree Hong Kong Ministerial, 2005: Only minimal

agreement

Negotiations suspended July 2006, restarted2007 US, EU, Brazil and India met in Potsdam,

Germany, but ended in deadlock June 21, 2007 June 30, 2007: US negotiating authority expired

July 29, 2008: Negotiations broke down overagriculture

Future uncertain; dont know when, & whether,talks will resume

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Doha Round Objective was: Doha Development Agenda

To achieve substantial further reduction in trade barriers,

In both developed and developing countries,

While for the first time providing meaningful benefits to

developing countries

Conflicts: US and EU agricultural subsidies and tariffs

Developing-country import barriers in manufactures andservices

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Doha Round

Reasons for failure of Doha Round:

All countries wanted

other countries to reduce trade-distorting policies,

but not to change their own policies WTO requires agreement by all of its member countries (now

156); thats hard to achieve!

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Doha Round

Reason for collapse in 2008 : Disagreement inagriculture

US trade distorting subsidies: US would cap these, but not at

a low enough level to satisfy India and China Special safeguards for India: Permission to raise tariffs if

imports rise above some threshold

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Doha Round: What will happen next?

The Round may be able to restart. This willrequire leadership, probably from U.S.

Likely to be increased move toward PTAs/RTAsamong pairs and small groups of countries

Who loses? Developing countries (see Blusteinarticle)

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WHATS HAPPENING NOW? - PTAS

PTAs (Preferential Trade Agreements)

Most countries are in some of these and are negotiatingto form more

Typical PTA is Free Trade Area (FTA) such as

NAFTA (North American Free Trade Area) Well study the effects of these later in the course

They are not necessarily economically beneficial

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Recent United States Free Trade Agreements

Completed since 2001 Being Negotiated

Australia, Bahrain, Chile,Costa Rica, DominicanRepublic, El Salvador,Guatemala, Honduras,Jordan, Morocco,Nicaragua, Singapore

Signed and ratified 2011:

S. Korea, Colombia,Panama

Ecuador, Malaysia, Oman,Peru, Thailand, United ArabEmirates, + SACU (Southern

African Customs Union)

Also Trans-PacificPartnership (TPP)

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Trans-Pacific Partnership (TPP)

Started in 2006 as Trans-Pacific Strategic EconomicPartnership: Singapore, Brunei, Chile and New Zealand

In 2008, US said it would negotiate to join, and this

brought in 4 more countries: Australia, Peru, Malaysia,and Vietnam.

In 2001, Japan and Canada indicated an interest injoining.

The countries are extremely diverse.

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Objective of the TPP

To negotiate a state of the art trade agreement

It would go beyond existing agreements

It would permit additional countries to join

US claims it will Enhance competitiveness

Promote US employment

Demand high standards

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Regional Trade Agreements (RTAs) Notified to GATT/WTO


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Most recently, in 2011:

February 2011: India and Japan sign FTA

June 2011: 26 African nations launch talks for FTA

October 2011: US Congress approves FTAs with

Korea, Colombia, Panama October 2011: 8 former Soviet states sign FTA

November 2011: US-Korea FTA approved by Korea

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W H N ?


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WHATS HAPPENING NOW? -DISPUTES

Trade Disputes

Boeing-Airbus: US vs EU over aircraft subsidies

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W H N ?


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Trade Disputes

Byrd Amendment: US redistribution of anti-dumpingduties, ruled illegal by WTO

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W H N ?


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Trade Disputes

Chinas currency (the yuan)

Was pegged to US $ at 8.2765 /$ and consideredundervalued

Allowed to rise as of July 21, 2005. It rose 2.1% Rose steadily until July 2008, to 6.8363 /$ about 20%

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W H N ?


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Trade Disputes

Chinas currency (the yuan)

In July 2008, dollar itself started to rise, and yuan went back tobeing fixed to dollar

Many, in US and especially in EU, think yuan should rise muchmore. China says no!

Yuan did start to rise, a little in summer 2010

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HOW CHINAS EXCHANGE RATE BEHAVESUS$/YUAN EXCHANGE RATE

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RECENT MOVEMENTSOFTHE YUAN

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topic2a worldtrade institutions

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